Overview: The winning streak for stocks around the globe continued last week on optimism for a “Phase 1” trade agreement between the U.S. and China, as well as above consensus corporate earnings. Emerging market stocks led the way (MSCI EM) , up 1.5%, followed by the S&P 500, up 0.9%, and international developed (MSCI EAFE) up 0.5% for the week. In bonds, global government bond yields were higher, impacted by the dynamics of U.S. and China trade talks. 2-year and 10-year Treasury yields ended at 1.66% and 1.93% respectively for the week, with the 2-year to 10-year Treasury yield spread now at 27 bp, up from just 5 bp a month ago. In economic data, Oct.’s non-manufacturing index posted at 54.7, above consensus, as business activity and employment showed continued strength in domestic demand.
This week: With the third quarter earning season reporting almost over, investors will look to trade headlines and economic data for market direction. We will get reports on CPI (Wednesday), PPI (Thursday) and retail sales and production later in the week. Of note, investors still hold approximately $3.4 trillion in cash that has not been invested in the capital markets. The combination of steady growth and low inflation, along with accommodative monetary policies and a decrease in trade tensions, may provide incentives for investment of this cash. If this happens, this could be a technical positive for both stock and bond markets.
Sources: Goldman Sachs Asset Management, Pac Global, Bloomberg
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